Strong revenue growth and improved operating efficiency drive positive earnings. Henlius’ 1H23 revenue increased 94% YoY to RMB2.50bn, mainly driven by the strong sales growth of HANQUYOU （trastuzumab biosimilar） and HANSIZHUANG （PD-1 mAb）。 The GP margin （vs product sales） was 66.5% in 1H23 （vs 68.4% in FY22）。 Selling expense ratio （vs product sales） decreased to 36.4% in 1H23, compared to 39.2% in FY22, and the admin expense ratio decreased from 13.2% in FY22 to 7.6% in 1H23, showing the Company’s improving operating efficiency. The R&D expense was RMB584mn in 1H23 （vs RMB534mn in 1H22）。 In 1H23, Henlius recorded around RMB333mn cash inflows from operation activities, and achieved net profit of RMB240mn, recording the first profitable half year in the Company’s history. As of Jun 2023, Henlius had RMB759mn cash on hand.
　　Global potential of serplulimab （PD-1）。 Serplulimab has been approved in China for MSI-H solid tumours, 1L sqNSCLC, and 1L ES-SCLC, and the fourth indication （1L PDL1+ ESCC） is currently under CDE review with the approval expected in 2H23. The sales of serplulimab was RMB556mn in 1H23 （vs RMB339mn in FY22） and has reached monthly sales of RMB100mn+ since Mar 2023. Additionally, the Company expects to file sNDA of serplulimab for nsq-NSCLC in 2H23 in China. In the global market, serplulimab mainly targets the differentiated SCLC indication. The NDA of serplulimab for 1L ES-SCLC was accepted by EMA in Mar 2023, with the approval expected in 1H24. Henlius is conducting a bridging study of serplulimab for 1L ES-SCLC in the US, with the BLA filling expected in 2024. Henlius is also conducting a Ph3 MRCT of serplulimab + chemo-radio therapy in PDL1+ LS-SCLC, with data available in 1Q25. In addition, serplulimab + chemo is in Ph3 study for GC perioperative treatment, with data readout expected in 2Q25, potentially being the first PD-1 for perioperative GC, upon Keytruda’s failure in EPS （link）。
　　Successful commercialization of biosimilars. HANQUYOU （trastuzumab biosimilar）， marketed by the Company’s in-house team in China, recorded RMB1.28bn revenue in 1H23 （+57% YoY）， and has achieved monthly sales of RMB200mn+ in China since Mar 2023. In the overseas markets, Accord has submitted the BLA of HANQUYOU in the US in 1Q23, and the FDA has recently conducted a manufacturing site inspection of Henlius’ Songjiang Facility （24,000L） in Aug 2023. We expect HANQUYOU to be approved in the US by end-2023. Launched in Jan 2023, HANBEITAI （bevacizumab biosimilar） recorded RMB45mn sales in 1H23. HANLIKANG （rituximab） and HANDAYUAN （adamumab）， commercialized by Fosun Pharma, contributed RMB254mn （-7% YoY） and RMB21mn （+5% YoY） to Henlius’ revenue in 1H23.
　　Maintain BUY. We like the Company’s strong outlook of improving profitability. We revised our DCF-based TP to HK$14.46 based on DCF valuation （WACC: 11.46%, terminal growth rate: 2%）。